Unexpected expenses could pose a serious challenge to your finance, because they hardly form part of your budget. Expenses like car repair, fixing water pumping machine, emergency community contributions etc can put you under undue pressure financially. These expenses are outside your normal routine, and slightly unpredictable in terms of exact timing, but you can still make these an integral part of your budget.
These steps would help you need these irregular expenses with less pressure:
Keep tab on Your Monthly Spending
A lot of people don’t have the foggiest idea of how much they spend on monthly basis. They do not record of their earnings talk less of their expenses. These kinds of people often have challenges with their finances. They spend irrationally, so, they would always have problems whenever they are hit by unexpected expenses.
To overcome this, challenge, you have to structure you income and expenditure on monthly. Track your monthly expenses by drawing a monthly budget. Budget worksheets would be of tremendous help here, some make them your companion. They will help you track every dime you earn and spend.
Plan your annual expenses
There are some bills that you have to just offset once or twice a year. For instance, If you are in Lagos, those landlords collect their rent annually, your land use charge, community development levy etc are usually paid once in a year. Expenses like school fees are also paid three times annually for primary and schools and once or twice for students in tertiary institutions of learning. So, you can make annual budget for these expenses.
Save for annual expenses all year long by figuring out the total amount you will spend in a year, and dividing that by 12 to discover your “monthly” budget for that item. For instance: If your house rent is N200,000per annum, you can make a monthly budget of N17,000 for your house rent. Move this N17,000 monthly into a savings account that is specially marked for rent.
You could also withdraw that money that is earmarked for rent and keep it in an envelope reserved for that purpose. Just be sure you stash that envelope somewhere safe and you are not tempted to use the money on other things.
Project Your Long-term spending
Some huge expenses hit you least expect. You would need a new computer, change your furniture, buy new mattress or replace your television set. Don’t allow these long-term expenses take you by surprise. You can plan for these expenses way ahead by making monthly allocations for them.
Calculate how much the once-per-decade item will cost. Divide that by your time frame. This is the amount you should allocate for it in each month. For example: If you want to change your living room chairs in four years’ time and it would cost N20,000, it means you have save N4,200 on monthly basis for the next 48 months to be able to acquire these chairs. To do this, you must pay in N4,200 in a savings account earmarked for the purchase of these chairs. This way you can easily meet your huge expenses that come up once in a while.
Arrange for Your Once-In-A-Lifetime Expenses
The biggest bills you will ever pay are your once-in-a-lifetime bills: School fees, your wedding expenses, burial for your parents etc. Save for these by anticipating how much it will cost and divide that amount by your time frame. Though this may be very challenging in Nigeria, where prices are not stable, but it is doable.
To demonstrate this, let’s take for example: If you want to contribute N3 million towards your child’s university expenses. Your child is currently 6 years old. Your child will probably gain admission into a university go to college 12 years from now, which is in 144 months. You have to divided N3 million by 144 which will come to about N20,833.33, which means you should save at least N20,890 per month towards your child’s university education. If your monthly pay can accommodate this, it is wise you start taking this step now.
But remember that 12 years from now, N3 million won’t have the purchasing power it has today. Raise your contribution at the rate of inflation to compensate for this. For example: This year you contribute N20,900 per month toward university fund. You can project that inflation rate would increase roughly by 3 percent per annum, so next year you multiply N20,900 by 1.03. The result equals N21,527- an increase of N627 per month. So, the second year you would be saving N21,527 for your child’s university fund. The following year after that, you contribute N21,527 multiply by 1.03 each month, which would amount to N22,172.81. You have to continue this circle until you actualize your target.
Do you feel overwhelmed that there is too much to save for? Make a move but take things one step at a time. At the end of the day, you would be better for it!